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South Korea’s Financial Services Commission to Ban Privacy Coins from Exchanges

South Korea’s Financial Services Commission (FSC) will ban privacy-centric digital assets or “dark coins” from crypto exchanges as they present a high money laundering risk.

Virtual asset providers in South Korea will no longer be authorized to handle privacy coin transactions according to a Nov.3 announcement from the FSC.

According to the announcement, the updates to the regulation for exchanges were updated in the Special Payment Act, which is specific regulation pertaining to the legal status of cryptocurrency—as such privacy coins or “dark coins” will be banned as they present too high a money-laundering risk.

The FSC’s new amendment to the Special Payment Act highlights privacy-oriented cryptos or privacy coins—referred to as dark coins in the announcement—which are designed to protect the identity of the user transacting. The effects will likely impact popular privacy coins like Monero (XMR), Zcas (ZEC), and Dash (DASH).

The FSC’s amendments are anticipated to be in effect by March 2021 and calls for exchanges to take accountability and leverage effective anti-money laundering (AML) and Know Your Customer (KYC) policies.

South Korean exchanges are obligated to report their operations within six months of the law coming into effect and will be required to confirm and verify the real names of their customers.

Due to existing international regulations around privacy coins, many crypto exchanges in South Korea already do not list “dark coins”. In September 2019, cryptocurrency exchange OKEx’s Korean arm delisted five privacy altcoins including Monero (XMR), Dash (DASH), Zcash (ZEC), Horizen (ZEN), and Super Bitcoin (SBTC) in compliance to the “travel rule” of the Financial Action Task Force (FATF).

Korea's Financial Services Commission Officials Mandated to Declare their Crypto Holdings

A lot of restructuring may be happening at the South Korean Financial Services Commission (FSC). Staff members were given a May 7 deadline to file a report detailing their cryptocurrency investments, as mandated by FSC Chairman Eun Sung-soo.

Per the Korea Times news outlet, the report was made obligatory after concerns that some members of the FSC may be leveraging the commission’s data and insider information to acquire digital currencies surfaced.

South Korea is one of the major cryptocurrency hubs today, with notable exchanges serving both local and global crypto users and investors. Per the Korea Times report, many young ones are taking to crypto to build their financial wealth, as access to other wealth-building avenues such as real estate is now practically uneconomical. This current change in innovation has resulted in a petition against the FSC Chairman Eun Sung-soo, for his beliefs and submissions that crypto investors are going in the wrong direction.

The FSC asset declaration exercises particularly apply to employees whose work revolves around drafting and applying virtual currency policies or laws; those investigating and monitoring the virtual currency; those responsible for reporting and managing virtual currency exchanges as well as those tasked with the responsibility of supporting and managing virtual currency technology development.

Korea Enforces Broad Industry Clampdowns

South Korea is very positive about the prospects of blockchain technology. However, Korean financial watchdogs have been hard at work in ensuring that the crypto industry adheres to regulations. The country is proposing a 20% capital gains tax on cryptocurrency commodities, while the country’s anti-money laundering regulations has prompted OKEx exchange to take its business elsewhere.

Despite the nations’ security operations exercising a zero tolerance approach for questionable exchange activities – as seen in the police’s raids and probe on Bithumb exchange last year – digital currency entities and individuals are unrelenting in their embrace of the growing digital asset.

South Korean Watchdog Uncovers 14 Fake Bank Accounts Used by Crypto Exchanges

Amid the growing regulatory clampdown on trading platforms in South Korea, the Financial Services Commission has uncovered 14 fake accounts being used by crypto exchanges in the country.

Per a report from Hankyoreh, the discovery was born out of an investigation of virtual asset collection accounts featuring customer deposit and withdrawal accounts with more than 3,000 financial companies.

The investigation revealed that 79 virtual asset operators or exchanges run 94 collection accounts, and 14 of them were fake accounts. The situation which aggravates the clampdown on the nation’s exchanges is bound to be more proactive actions, including the suspension of the fake accounts, with information shared with the police for potential prosecution, according to the FSC.

The regulators’ discovery of these fake accounts has renewed calls to sound warnings to consumers to beware of as exchanges are bound to close down ahead of the September 24 deadline for reporting set for trading platforms.

“The risk is increasing, such as temporarily shutting down the business while operating temporarily until September 24, the expiry date of the reporting deadline for the exchange. It’s high, so you need to be careful.”

Exchange Turmoil Takes Different Shades

Feared of being the channel through which digital currencies are exchanged, trading platforms pose a crucial challenge for regulators worldwide. The need to protect consumers from the risks of trading or to invest in digital assets has pushed the world’s largest exchange, Binance, to reduce its margin leverage from 125x to 20x in response to various watchdog’s prompting.

In particular, Binance Markets Limited, a subsidiary of Binance in the United Kingdom, has been banned from conducting any regulated exchange activity in the country. Other exchanges worldwide are also adjusting to new rules regularly as watchdogs seek to protect users from the inherent risks involved in crypto. Based on this, the exchange looks to create a more regulatory compliant offshoot, Binance UK.

South Korea probes crypto exchanges for local tokens

This year, native cryptocurrencies proved to be the most significant cause that led to the failure of a number of cryptocurrency exchanges and ecosystems; the most recent instance of this was the collapse of the FTX.

The Korea Financial Intelligence Unit (KoFIU), which is Korea’s authority on financial matters, took note of the same thing when it initiated an investigation into cryptocurrency exchanges in regard to listing their own internally created tokens.

The cryptocurrency exchange FTX and its 130 affiliated enterprises have just filed for bankruptcy as a result of a drop in the price of the FTX Token, the company’s in-house token.

A local article states that the purpose of KoFIU’s investigation into the matter is to maintain regulatory compliance for the protection of investors. This is the case despite the fact that Korean cryptocurrency exchanges are prohibited from releasing native tokens.

Initial examinations indicated that every cryptocurrency exchange operating inside South Korea followed all applicable laws and regulations.

A representative for the Financial Services Commission (FSC) said that “there are still some uncertainties linked” to in-house token listings. This prompted the FSC to announce preparations to conduct a more in-depth inquiry.

According to a report by the regional media outlet Yonhap, Flata Exchange is one of the key suspects and is now the subject of an investigation since it listed its in-house token, FLAT, in January 2020.

Authorities have said that major exchanges like Upbit and Bithumb are no longer under investigation; instead, they would concentrate their efforts on investigating smaller exchanges.

Taiwan Regulates Crypto Exchanges, Bans Unregistered Foreign Operators

Key Takeaways

Taiwan’s Financial Supervisory Commission (FSC) releases new guidelines for Virtual Asset Service Providers (VASPs).
Foreign VASPs are prohibited from operating in Taiwan without proper registration.
The guidelines were released on September 26, 2023, and aim to improve investor protection.

Regulatory Framework

Taiwan’s Financial Supervisory Commission (FSC) has taken steps to regulate the cryptocurrency market by releasing guidelines for Virtual Asset Service Providers (VASPs) on September 26, 2023. The guidelines cover a range of issues, including the separation of exchange treasury assets from customer assets, mechanisms for listing and delisting virtual assets, and internal control systems.

Foreign VASPs Face Restrictions

The FSC explicitly stated that foreign VASPs are not allowed to provide services in Taiwan unless they have been registered in accordance with Taiwanese law. This move aims to ensure that all VASPs operating in the country adhere to local regulations and compliance standards.

Self-Regulation Encouraged

The FSC also encourages self-regulation within the cryptocurrency industry. VASP associations are expected to formulate self-regulatory norms based on the contents of the guiding principles. This comes as local exchanges like Maicoin, BitstreetX, Hoya Bit, Bitgin, Rybit, Xrex, and Shangbito have formed the Taiwan Virtual Asset Platform and Transaction Business Association.

Global Exchanges in Taiwan

Major global crypto trading firms like Binance have also been serving customers in Taiwan. Binance reportedly applied for registration in Taiwan under the Money Laundering Control Act. Other exchanges like Kraken and Bybit have been offering services to clients living in Taiwan.

Investor Protection

The FSC has emphasized the need for investor protection, especially in light of recent incidents involving foreign crypto exchanges. The guidelines are part of a broader effort to mitigate risks associated with the highly speculative nature of virtual assets.

South Korea's Stance on Virtual Currency Investment and ETFs in 2024

South Korea has reasserted its stringent position on virtual currency investments. The country’s top financial regulator, the Financial Services Commission (FSC), has unequivocally stated that it will continue to enforce its policy that restricts financial institutions from launching cryptocurrency exchange-traded funds (ETFs). This stance comes despite the increasing global acceptance of cryptocurrencies and the approval of crypto ETFs in the United States.

The Financial Services Commission has articulated that the decision to uphold the ban is rooted in the need to ensure the stability of financial markets and protect investors. According to local media reports, an official of the FSC highlighted that the approval of spot bitcoin ETFs in the U.S. does not influence Korea’s regulatory approach. The regulator’s firm stance reflects a cautious attitude towards the volatile nature of cryptocurrencies and a commitment to safeguarding the traditional financial system.

South Korea’s existing capital markets act limits the scope of underlying assets for investment contract securities, such as ETFs, to traditional financial investment instruments, currencies, and commodities. Cryptocurrencies, not being recognized as financial assets in South Korea, fall outside the purview of permissible investments for financial institutions. This policy has been in place since 2017 and remains a cornerstone of South Korea’s approach to managing the risks associated with digital currencies.

In addition to the ETF ban, South Korea is also working on comprehensive crypto regulation, which is being developed in two parts. The first part of this regulation, passed last year, is set to come into effect in July 2024. This legislation will establish clear rules regarding the issuance, listing, and delisting of cryptocurrencies. The second part of the regulation is still under construction and aims to further refine the legal framework governing digital assets.

Another significant aspect of South Korea’s regulatory framework is the Virtual Asset User Protection Act, scheduled to be enforced from July 19, 2024. This Act will enforce specific regulations for improved user safety and market stability in the virtual asset sector. Notably, the Financial Services Commission has declared that NFTs (Non-Fungible Tokens) and CBDCs (Central Bank Digital Currencies) are exempt from these regulations.

The recent developments indicate a cautious but evolving approach by South Korean authorities towards cryptocurrency and digital assets. While maintaining strict control over traditional financial institutions’ involvement in crypto, the government is also laying down a foundation for a regulated and secure environment for digital asset transactions.

Taiwan's Financial Regulator Cautions Investors Amidst Crypto Volatility

The Taiwan Financial Supervisory Commission (FSC) has issued a public statement urging caution among investors regarding the trading of virtual assets, including cryptocurrencies like Bitcoin, in light of recent significant price fluctuations that have led to substantial losses for some traders.

In the wake of tumultuous market conditions, the FSC emphasizes that virtual assets are highly speculative digital “virtual commodities” and not recognized as currency. They lack inherent value, and their trading prices are not subject to regulatory limits, resulting in potential steep rises and falls. The FSC advises citizens to thoroughly understand the operational models of these assets and to carefully assess the risks before engaging in transactions.

The FSC also warns about the risks associated with using overseas virtual asset trading platforms. These platforms are not established under Taiwan’s regulations, may not be regulated by foreign authorities, and the transparency of trading information can be questionable. The FSC recommends that the public exercise due diligence when considering such investments.

For those seeking further information or with specific inquiries, the FSC has provided contact details for its Securities and Futures Bureau’s Securities Firms Division.

The rise of cryptocurrencies and digital assets has been one of the most transformative developments in the financial sector in recent years, drawing attention from regulators worldwide. With the FSC’s latest advisory, Taiwan joins a list of countries that are actively working to educate their citizens on the potential risks associated with the volatile cryptocurrency market.

The crypto market’s rapid growth and the emergence of various digital assets have underscored the need for clear regulatory frameworks and investor education programs to ensure that participants are well-informed of the risks and the nature of their investments.

While regulators like the FSC aim to protect consumers, they also face the challenge of fostering innovation and not stifling the growth of new financial technologies. The balance between regulation and innovation remains a central theme in the ongoing dialogue between financial authorities, investors, and industry participants.